Consequences of Defaulting on a Federal Stafford Loan

Repaying a Federal Stafford Loan on time should be taken seriously by its borrowers. Otherwise, the delinquency will cause severe student loan default consequences that will somehow affect your future financial life in a negative way. Here are some aftereffects when you fail to pay your loan debt obligations.

Referred to Collection Agency


If the borrower does not make any effort to repay his or her Stafford Loan, it will be considered a default. The federal government will then turn over the loan to a collection agency. When this happens, the borrower will be responsible to pay the collection costs incurred in the entire process of repayment. A rate of 25% of the principal and interest due on the loan will be charged as service fee for the agency assigned to collect the repayment of your loan debt. As a result, you will have additional financial obligation to tackle aside from paying back the
borrowed funds.

Reported to Credit Bureau Organizations


Borrowers with defaulted student loans will be reported to the big credit bureau organizations namely: Equifax, Experian, and TransUnion. Once they are informed of your delinquent loans, it will be noted on your credit record, thus, affecting your credit rating. With a bad credit history, difficulties in obtaining other loans in the future will be a problem since lending companies acquire your credit report first before they approve loan applications.

Prevented to Apply Future Student Aids


A borrower with a default Stafford Loan will not be entitled to avail another federal student loans when he or she decides to get a college or graduate degree program. You will no longer be able to enjoy the student privileges that the federal government offered unless you will do something and make necessary arrangements to repay what you owed.

Withholding of Federal Tax Refunds

The Department of Education is given the right to intercept federal or state tax refunds through the Internal Revenue Service if you have a defaulted Stafford Loan. A notice will be sent to your end asking you to repay your lender within a given period of time. Your failure to accommodate the notice will result the withholding of your tax refunds. The refund will be used to offset your debts.

Limited from Federal Benefits

Defaulting loans offered by the government makes a big impact on your job application in the federal government. You will be prevented to hold a working position in departments, agencies, or even the military service you are interested to apply in. Your desire to serve the government could be denied due to the negative record of unpaid debts that affects your character. In addition, the government may cancel the renewal of any professional license you have, and may withhold some of the benefit payments you will get from the Social Security Agency.

Salary Deduction

If you are earning an income through a regular job, the federal government can ask your employer to deduct 15% of your take-home salary in able to cover what you owed in your Stafford loan.

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